It has recently come to my attention that a friend of mine in another state is being sued by a Seller he represented in a Short Sale transaction because he didn’t disclose the fact that the homeowner was selling short in a recourse state and could potentially be sued herself for a deficiency judgment. Needless to say, the seller was issued a deficiency judgment by the court in the amount of $48,000.00. The seller ended up filing bankruptcy to rid themselves of the judgment but, bankruptcy was something they were wanting to avoid all together, hence the short sale. The seller’s argument is that the agent did not explain the process and potential risk therefore he was incompetent to practice such a highly specialized real estate transaction and should have never engaged the short sale. The seller also argued that none of the documentation the agent submitted to the bank protected the seller from any future deficiency judgment and proper due diligence was never done. The case isn’t resolved at this time however, I would like everyone to chime in and give their thoughts. As soon as I learn more about where this went, I will tell ya.
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Jesse Gonzalez is a highly accomplished and respected real estate professional with a wealth of experience in the industry. With a career over 15 years, Jesse has established himself as a leading real estate sales and marketing expert.

As a licensed real estate agent since 2005 and a broker since 2008, Jesse has a comprehensive understanding of the complexities of the market. In 2013, he founded his firm, Liberty House Realty, LLC demonstrating his entrepreneurial spirit and commitment to delivering exceptional service to his clients.

Jesse's expertise extends beyond traditional real estate transactions. He obtained his Registered Appraisal Trainee in 2019, providing him with valuable insights into property valuation and market analysis. Although he decided to focus primarily on sales, his appraisal background gives him a unique advantage in understanding the intricacies of property values and trends.

With a dedication to excellence, Jesse consistently achieves outstanding results for his clients. Last year alone, he closed over $20 million in sales and received the prestigious Sapphire Award from his local association, recognizing his exceptional achievements in the industry.

Beyond his successful career in real estate, Jesse is passionate about education and personal growth. He is completing his undergraduate degree in Forensic Psychology, with plans to attend Law School in the fall of 2024. Jesse's ambition is to become a real estate litigator, focusing on real estate consumer protection law and advocating for the rights and interests of homebuyers and sellers.

As the owner/operator of the nation's largest social network for REO professionals, <a href="http://www.REOProNetwork.com">www.REOProNetwork.com</a>, Jesse has positioned himself as a thought leader and industry influencer. Through this platform, he fosters collaboration and knowledge-sharing among REO agents, attorneys, asset management firms, and other professionals in the field.

With a commitment to professionalism, integrity, and providing a personalized experience for his clients, Jesse Gonzalez is a trusted advisor and a driving force in the real estate industry. Whether assisting clients with buying or selling properties, he consistently goes above and beyond to exceed expectations and ensure successful outcomes.

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Comments

  • As I was reading your post and comments, I couldn't help but wonder if the issue is that he gave the seller incorrect information or if its that he didn't give the seller any information at all as it relates to the deficiency.

    In Georgia, there is a general disclaimer in all purchase agreements that states that neither the buyer nor seller relied on any advise, statements or representations of the broker other than what is included in the agreement. It goes on to say that neither party may hold the broker responsible for the tax or legal consequences of the agreement or transaction.

    I know that each state is different and that its best to have as much as you can in writing but it seems to me that a disclaimer like this would be sufficient. The reality is that none of us knows what the banks will do about these deficiencies when the economy turns around. We can put verbiage in the contract and addendum and they may put contradicting verbiage in the short sale approval letter. It almost seems like you are leaving yourself open to litigation if you put verbiage in the addendum about waiving the deficiency, that may indeed be signed by the appropriate person, but then the short sale approval has language indicating that they have not given up their rights to pursue your client for the debt in the future.
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  • Hi George, I would love to take a look at the file. My Managing Broker is on the regulatory commission "forms" board so, that would be helpful!

    By the way, I have an update on my friend. His E&O provider has come to an agreement to settle out of court. I asked him how much and he wouldn't tell me the final amount but, he said it would have bankrupted him.

    The settlement deal is that the plaintiff gets the money as long as he agrees to "bind" the case. I really wasn't sure what that meant but, it was explained to me that once the case is "bound" no one involved is aloud to speak about it for 30 years. In other words, it's hush money!

    I will keep you updated as I learn more.
  • The California Association of Realtor has a form just for Short Sale Disclosure. IT tells them to go get advise and we can not be expected to know of all the changes. I have been putting the Disclosure in the File dated at listing, offer, and acceptance. I think I can e mail the Disclosure to anyone that wants to take a look at it, if your state is not offering such a form... But of course CAR protects the rights to the form.
  • I guess the last comment by George Bellino covers it pretty well. We should understand that while the economy is not doing so well right now, at some point it will turn around and eventually they will find a way to recoup some of their losses. Going after our E&O insurance may be a way. Therefore, it is not a bad idea to get as much in writing as we can.
  • That's short sale 101. I always disclose the possibility for a deficiency judgement and have the seller sign off on it. Also, we always put into the contract of any buyer that the sale is subject to the bank waiving any deficiency judgement. I have had some small promissary notes they wouldn't waive but they were allowed to make small monthly payments. I have one now that has been accepted and the bank won't waive the deficiency so we advised our client not to sell until they waive it. If they're going to come after the seller they mine as well wait it out as long as possible then. I did see some new NAR documents that were supposed to be passed referring to the banks not allowed to enfore deficiency judgements of any kind and also the goverment is offering to match funds that the first lien pays to the 2nd lien, up to a certain amount. Unfortunately, your friend really has no defense if he has nothing signed to protect himself. Agents don't realize how careful they must be when attempting these kinds of transactions.
  • I suggested to my cleints to check with their CPA, if they do not have one, I suggest gettting one and consult an attorney. Then I give my opinion based on previous experience. I also have literature that I got from my CPA explaning the pro's and con's. My understanding is that in california you just have to show that at the time of the short sale you have to show insolvience. A BK is a fast easy way to do that and most attorney suggest BK because it is quick and easy for them. I have found that CPA's look for other avenues. But that is just my personal experience. There are other options to be discussed with the CPA about the tax ramifiacations. It has also been my experience that on the demand letter from the bank accepting the short sale they reserve the right to collect the difference; at least I know WAMU puts it right on the demand. Since the bank is making the decision on to follow up or not follow up on the loss, the arrangement is between the client and their bank. The loan contract is between the client and their bank. Our listing Contract spells out the sale of the home. We address the short sale issue on the addendum. However, when sellers are underwater they do not necessarily know what they are signing and rely heavily on the agent. Some agents should not do short sales because of the extra work. It is a fairly new process to all of us
  • This seems to me to be a case where the agent inserted both feet into MOUTH! On my end I only represent banks. But I tend to be VERY careful in what I say to any buyer or agent for a buyer. I have seen some sloppy stuff in this town as far as agent behavior and just offer these few thoughts: 1. In a short sale situation I feel that the agent perhaps lost this thing in making statements and promises to the seller that the the agent had NO right doing. If the seller was asked about liability in the short sale the agent should have either refered the seller to her mortgage company or to an attorney for legal advice. I for one stay clear of any hint of offering any legal advice. That would have gotten the agent out of the spot they now find themselves. Perhaps the agent should have had some sort of hold harmless document prepared for the seller to sign freeing the agent from any liability down the road. It seems to me that this all comes about when agent's open their mouths about things they really have little knowledge of. And if they do, they need to keep it to themselves. Best that the seller had sought advice from either the mortgage holder or an attorney.
  • Jesse, sorry for your friend, and the information that follows does not pertain to him, but to agents in general. The bottom line here is that an agent should not be practicing what they don't know. Too many agents out there are hungry right now for a commission check that they'll do most anything, including a Short Sale. Many, many moons ago a Broker of mine told me, "if you aren't sure of what you are doing, refer it out to somebody that does know". I have held onto that advice for 19+ years now. Remember, this type of Real Estate wan't even in vogue 3 years ago, now everyone claims that they know how to do them----without even taking a course half of the time. Also, I would add that the agent's office manager or Broker should have been on top of this situation as well. Whether you are in a 5 person office or a 500 person office, team leads, office managers, and Brokers are paid to watch out for these types of situations, especially if your friend is fairly new.......and let's face it, a vast majority of agents out there right now have never experienced a down market. Tell your friend to get a lawyer, tell your friend's Broker to get his attorney on notice and watch the E & O go up. I won't allow newer agents in my office (less than 5 years) to do Short Sales, more things can go wrong than right in that type of transaction. Even my most experienced agent cannot do them without my help, and our office attorney reviewing over all the paperwork prior to submission. KIRB in MD.
  • This all goes back to not making promises and giving legal advise. I tell all my clients the latest information released by the IRS and direct them to www.irs.gov so they can read up on it for themselves. The mortgage debt relief act does protect homeowners on their primary residence only. I do tell them about the 1099c that they could be hit with. I always tell them to seek legal advise from their atty or tax advisor before doing the short sale. I too use a short sale addendum. In most cases the lender will sign and not go after the borrower for the def judgement. However, the PMI companies are beginning to step and force these borrowers sign a promisary note for 25% of the def. The first one of those I had blew my socks off. I also make the homeowner sign an agreement holding me and my agency harmless. I think you pal has a chance of not loosing his case as long as he did not give legal advise. Doing short sales is a very fine line. That is why I went to an atty for guidance before I began doing so many of these. It can easily be misconstrude as legal advise. With the hold harmless is the statement " I am not an atty nor am I tax advisor ..." I wish your friend the best.
  • This is one thing that just scares the hell out of me with these short sales. Few people know what they are doing, and there is even less documation to protect us. I think we will see more of this in the years to come.
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